Big Layoffs at Old Tech Firms

The employment situation in the US has been outright rosy. Initial unemployment claims have been bumping along near record lows. Whether or not companies are hiring, at least they’re not axing people in massive numbers. The unemployment rate of 5.8% is practically comfort inducing. OK, we can smell the odor of the details underneath, but hey. And for September, the Challenger Job Cut Report raved about 2014 being “on pace to be the lowest job-cut year since 1997.”

Got it. Things are good.

Then came October, and announced job cuts jumped 68% from September, and 12% from a year ago, to 51,183. Year to date, job-cut announcements of 414,591 were still down 4.3% from the same period last year. And just as we’re exhaling, we read in the report that this “may mark the kick-off to a fourth-quarter surge in job cuts.” More pain? “It is not unusual to see the pace of downsizing accelerate in the final months of the year, as employers take measures to meet year-end earnings and profit goals.”

So companies are getting their announcements out of the way, including the charges that come with the layoffs – these pesky “one-time items” that keep recurring – so that analysts can focus on metrics they’re supposed to focus on, rather than actual earnings.

Biggest sinner? Retail, with 6,874 planned layoffs for the month, a big jump from September. For the year, announced job cuts were up 5%, to 38,948, following an ongoing epidemic of store closings, restructurings, and bankruptcies.

But the trouble in retail pales compared to what’s going on at the paragon of corporate America, the brilliant hope for the future, the core of innovation: the tech industry. The report divides tech into three segments.

There’s the computer industry which includes permanent layoff queen HP; it layered another 5,000 job cuts on top of the 16,000 it had announced earlier in the year, and on top of the tens of thousands it had announced in prior years. The segment also includes Microsoft which is now implementing its own mega job cuts. In October, the segment announced 6,509 job cuts for a total so far this year of 55,511. That’s up 92% from a year ago!

The electronics industry – Cisco among them – announced 1,648 job cuts for the month, bringing them to 18,153 year-to-date. Up a stunning 136%!

The telecommunications industry – which includes money-losing Sprint, now 80% owned by SoftBank of Japan – announced 5,217 job cuts for the month, which brought the year-to-date total to 20,038. Up 81% from the same period last year.

All three tech segments combined clocked in with 13,374 job cuts in October and 93,702 for the year so far. Up 97% from the same period last year!

That’s more than just the routine tweaking of the work force, where some people get laid off in one area of the company and other people get hired elsewhere. This time it’s serious. And they’re all doing it: Microsoft (18,000), layoff-meister HP (21,000), Cisco (6,000), Intel (5,350), Sprint (2000 on top of the 5,000 by which it already reduced its workforce so far this year), TI (1,100), Dell (1,000), EMC (1,000)…. You keep going like this, and pretty soon you’re talking real numbers.

Tech’s layoff announcements are likely to blow past 100,000 for the year, on track to be the worst year since 2009, when it announced 174,629 job cuts.

So is this the end of the tech bubble? Nope. In 2001, the last time a tech bubble blew up, Challenger reported nearly 700,000 job-cut announcements. Countless startups that were going to change the world ran out of money and were shuttered – without even making layoff announcements. Others slashed their workforce and survived or were absorbed. Large tech companies went through wholesale workforce reductions.

This isn’t what’s happening now. The culprit is Big Old Tech. These are the mastodons that have been around for decades, the tarnished American stars. Many of them are revenue challenged. So they’re on an acquisition spree, trying to grow that way, instead of developing their own products and markets. With a cost of capital near zero after inflation and taxes, thanks to the Fed’s machinations, it doesn’t really matter on what this free money gets blown, so long as it doesn’t get invested in people. Each acquisition has led to layoffs, and still, revenues are mired down. And some of these tarnished stars rack up big losses.

In addition to perfecting their financial engineering, these companies are playing the layoff game. Announcements are impeccably timed, issued with maximum fanfare, and expressed in immaculate corporate speak liberally sprinkled with hype. There would be future savings and efficiencies, it would make the company more nimble, etc. etc. The purpose of these announcements is to goose the stock price. And it works.

The job cutting debacle in Big Old Tech contrasts with the hiring battles in other areas. Facebook and Google don’t have to brag about decimating their workforce and throwing out brains and experience in order to boost their stock price. They are hiring, and their expenses are soaring, but what the heck, in this climate, nothing matters. Then there is a myriad of startups that have neither revenue nor business model, and certainly no profits, but as long as they’re awash in other people’s money, they’re hiring too. But when the money dries up, 2001 will play out all over again, even if to a slightly different tune. Meanwhile, it’s Old Big Tech that’s singing the blues.

And just when you thought we’ve reached the peak of craziness in startup-land, it gets even crazier.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.